A Better Way to Track Trade Than ‘Made in’ Labels

By the Editors -
Jan 21, 2013

What does it mean when the label on
your mobile device says “Made in China”? Possibly a lot less
than you thought.

Trade experts have known for years that the complete story
of the global economy can’t be gleaned from data on the flow of
finished goods and services among countries. Trade figures
register the value and volume of stuff leaving one country and
entering another, yet the numbers are misleading.

Consider your mobile phone. Trade data ignore that various
parts of it are made in the U.S. and shipped to China. As the
final assembler, China gets credit for phone exports from its
shores, while the U.S. shows up as an importer, making the trade
deficit between the two countries appear worse than it really
is.

The Organization for Economic Cooperation and Development
and the World Trade Organization set out to fix this by
deconstructing the global supply chain to show how much of an
exported phone, truck or dress really originates in a given
country. The result is a new data set that could change the
entire trade debate.

The “trade in value-added” database shows, for example,
that the U.S. deficit with China in 2009 (the latest year’s
trade statistics examined in the report) was almost 26 percent
smaller -- $130 billion instead of $175 billion -- because
Chinese electronics include numerous components from the U.S.
and other places.

Profound Implications

The figures also show that a third of the value of a
German-made car can be traced back to goods and services from
other countries. And despite what existing trade figures say,
the U.S., not Germany, is France’s largest trading partner.

The policy implications are profound. If China is getting
more credit than it deserves for its exports, then U.S. imports
of Chinese products aren’t wiping out as many American jobs as
the data suggest. China’s export machine may even be creating
American, European and other Asian jobs by sourcing components
from those countries.

The study suggests that a country’s capacity to import
parts and materials is as important for success in the global
economy as the ability to manufacture a product. This means
countries with efficient port facilities and streamlined border
controls, allowing goods to enter and exit quickly, will have a
leg up in global trade.

What’s more, the data suggest that trade barriers,
especially tariffs, may be hurting economies by raising the
prices of goods and services throughout the global supply chain,
rather than sheltering the jobs they were erected to protect. As
the study says, “Tariffs and other barriers on imports are a
tax on exports.”

Importantly, the new numbers more accurately capture the
role of services -- which, it turns out, account for about one-
third of the value of all manufactured goods. Surprisingly,
Germany earns more from exporting services than it does from
exporting manufactured goods. In the U.S., the service sector is
responsible for more than 50 percent of all exports. The message
for government officials looking to boost competitiveness and
create wealth: Focus more on improving productivity in services.

The anti-trade forces in Congress and labor groups would do
well to study the data and get off their “China as a currency
manipulator” hobbyhorse. Currency policy is less important than
free-trade deals, including the pact that the U.S. is pursuing
with the countries of the Asia-Pacific region and another one
the U.S. may try to negotiate with the European Union.

The Barack Obama administration should also press ahead
with talks on a global deal to liberalize trade in financial
services, telecommunications and technology.

We urge governments to update and expand the value-added
database, in hopes it will supplant the incomplete statistics
that now guide trade policy worldwide. The better picture we
have of how trade really works, the more we will be able to reap
its benefits.